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The Benefits of Separating Early Retirees from the Unemployed: Simulation Results for Belgian Wage Earners

  • Desmet, Raphaël

    ()

    (Federal Planning Bureau, Belgium)

  • Jousten, Alain

    ()

    (University of Liège)

  • Perelman, Sergio

    ()

    (CREPP, Université de Liège)

The pool of early retirees is characterized by a large heterogeneity along several criteria. The present paper focuses on the key distinction between those in forced early retirement and those who retire early by individual choice. We start by estimating a retirement probit model for older workers in Belgium. Based on these estimates, we then perform micro-simulations relating to a hypothetical actuarial reform of a pension system, i.e., a reform imposing on average actuarial neutrality with respect to the time of retirement. We explore two scenarios, one where the entire population is subjected to the actuarial system, and one where a duly screened sub-sample of the unemployed is shielded against these actuarial adjustment factors, a group we call the truly unemployed. We evaluate the impact on the average retirement age, the pension budgets as well as indicators of redistribution within the group of the elderly. We find that the extra budgetary gain of exposing this subgroup to the full-blown reform is modest, while the distributional cost is rather high. Our results thus comfort the idea that the budgetary cost of a focused unemployment system are moderate, and that returning the unemployment insurance to its primary role might be a desirable strategy.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1571.

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Length: 26 pages
Date of creation: Apr 2005
Date of revision:
Handle: RePEc:iza:izadps:dp1571
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  1. J. A. Mirrlees & P. Diamond, 1982. "Social Insurance with Variable Retirement and Private Saving," Working papers 296, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Sheshinski, E. & Diamond, P., 1992. "Economic Aspects of Optimal Disability Benefits," Working papers 92-5, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. John Bound, 1989. "The Health and Earnings of Rejected Disability Insurance Applicants," NBER Working Papers 2816, National Bureau of Economic Research, Inc.
  4. Desmet, Raphaël & Jousten, Alain & Perelman, Sergio & Pestieau, Pierre, 2003. "Micro-Simulation of Social Security Reforms in Belgium," IZA Discussion Papers 735, Institute for the Study of Labor (IZA).
  5. Dellis, Arnaud & Jousten, Alain & Perelman, Sergio, 2001. "Micro-Modelling of Retirement in Belgium," CEPR Discussion Papers 2795, C.E.P.R. Discussion Papers.
    • Arnaud Dellis & Raphaël Desmet & Alain Jousten & Sergio Perelman, 2004. "Micro-Modeling of Retirement in Belgium," NBER Chapters, in: Social Security Programs and Retirement around the World: Micro-Estimation, pages 41-98 National Bureau of Economic Research, Inc.
  6. Pierre Pestieau & Jean-Philippe Stijns, 1997. "Social Security and Retirement in Belgium," NBER Working Papers 6169, National Bureau of Economic Research, Inc.
  7. Diamond, Peter A & Mirrlees, James A, 1986. " Payroll-Tax Financed Social Insurance with Variable Retirement," Scandinavian Journal of Economics, Wiley Blackwell, vol. 88(1), pages 25-50.
  8. Bound, John, 1991. "The Health and Earnings of Rejected Disability Insurance Applicants: Reply," American Economic Review, American Economic Association, vol. 81(5), pages 1427-34, December.
  9. Sveinbjörn Blöndal & Stefano Scarpetta, 1999. "The Retirement Decision in OECD Countries," OECD Economics Department Working Papers 202, OECD Publishing.
  10. repec:cup:cbooks:9780521844956 is not listed on IDEAS
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